IBM PC Unit Sold to Lenovo with Huge Deficit Dec 31, 2004

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International Business Machines Corp.'s (IBM) PC unit piled up nearly U.S. $1 billion in cumulative losses in recent years, the company said in a filing that detailed the planned sale of the business to China's Lenovo Group.

The merger of IBM's PC business into Lenovo creates the world's third-largest personal computer maker. The merged company will be headquartered in Armonk, NY, U.S., where IBM is currently based.

IBM revealed in a regulatory filing previously undisclosed details of the finances of its money-losing PC business, which showed an accumulated deficit of $973 million as of June 30, 2004.

"The (PC) business has a history of recurring losses, negative working capital and an accumulated deficit. The ability to settle obligations as they come due is dependent on IBM funding the operations on an ongoing basis," IBM said.

Earlier in December, IBM agreed to sell its PC business to Lenovo of Beijing for $1.25 billion, plus the assumption of debt, marking the U.S. company's retreat from an industry it helped pioneer in 1981.

For the first 6 months of 2004, IBM reported net revenue for the PC division businesses sold to Lenovo of $5.2 billion and a loss of $139 million. Had IBM included the cost of deducting employee stock option expenses -- as new accounting rules in place next year would require it to do -- the company would have reported a net loss of $149 million, it said.

The filing showed IBM reported net losses at its PC business in each of the preceding 3 years, with a net loss of $397 million for 2001 -- the bottom of the PC industry slump -- improving to a net loss of $171 million in 2002.

The PC business suffered mounting losses again in 2003 of $258 million and lost money at a similar rate in the first half of 2004.

IBM disclosed that more than 50 percent of its products are manufactured through an unspecified joint venture -- an apparent reference to IBM's venture with Great Wall Technology to build desktop and notebook computers in Shenzhen, China. (Reuters)

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